Retiring with a million-dollar ASX share portfolio is a goal for many investors. And while it might seem out of reach when you first start investing, it certainly is achievable.
Key to realising this goal is starting to invest as early as possible to allow the power of compounding to work its magic and boost your long-term returns.
In addition, by investing through market downturns like we are experiencing currently, it may be possible to enhance your returns due to obtaining a more favourable risk/reward ratio.
And finally, by narrowing your focus on companies with strong business models and sustainable competitive advantages, you really could supercharge your returns.
Investing in ASX shares as early as possible would be a smart move. That's because compounding becomes more powerful the longer you are able to leverage it.
For example, a 10% return will turn $10,000 into $11,000 in one year. That's a $1,000 return on your original investment after 12 months. But 10 years of this return will turn your $10,000 into approximately $26,000. That's a $16,000 return after a decade.
If we then fast forward to the 30-year mark, you will see the power of compounding unleashed. At that point, your ASX share portfolio would be worth almost $110,000.
And if you can add to your holdings with regular investments, your ASX share portfolio would become even larger if you could achieve that 10% return. For instance, starting with $10,000 and adding $6,000 per annum to your portfolio would turn into $1.25 million in 30 years.
Invest through downturns
While market downturns are hard to take for investors, they could also be seen as an opportunity. History shows that a bear market has always been followed by a bull market.
So, by buying high-quality companies when they have been dragged lower during a downturn, you could position your portfolio to outperform when the tide eventually turns.
Focusing on quality ASX shares
In terms of where to invest, a focus on companies with strong business models and sustainable competitive advantages could be the way to go.
This has been a strategy that Warren Buffett has followed over multiple decades. And with the Oracle of Omaha delivering an average return of 19.8% per annum for his Berkshire Hathaway (NYSE: BRK.B) business since 1965, it is hard to argue against this strategy.
All in all, by combining the three steps, it is possible that investors could achieve the dream of a million-dollar ASX share portfolio at retirement.